Where Inventory Shrinkage Happens

                                                                                                                Employee Theft 44.5%

                                                                                                                Shoplifting 32.7%

                                                                                                                Administrative Error 17.5%

                                                                                                                Vendor Fraud 5.1%

                                                                   According to the study conducted by the University of Florida with a

                                                                   funding grant from Sensormatic Electronics Corporation, employee theft

                                                                   was up almost 2 percentage points from the previous study conducted in

                                                                   1998. Employee theft now accounts for more than 44 percent of all retail

                                                                   losses in the United States. The tight labor market has created a combination

                                                                   of factors that lead to higher dollar losses across the retail industry. The

                                                                   record labor shortage leaves retailers short-staffed, producing more

                                                                   opportunity to steal. This is compounded by the more dishonest employees

                                                                   allowed into the workplace because of these same retail staffing shortages.

                                                                   Employee theft and shoplifting combined account for the largest source of

                                                                   property crime committed annually in the United States. One positive note is

                                                                  while total dollars lost are up, there is a slight reduction of overall inventory

                                                                  shrinkage as a percent of sales. In this year's study total inventory shrink was

                                                                  1.69 percent of sales, down slightly from 1.72 percent two years ago.

                                                                              Other findings

                                                                                                              The amount of financial loss caused by the typical dishonest employee

                                                                  theft is $1,023.00.

                                                                                                               A dishonest employee typically works for his or her employer an

                                                                 average of nine months.

                                                                                                           The value of the average amount of merchandise taken by the typical

                                                                shoplifter is $128.00.

                                                                                                           Employee theft and shoplifting were the number one and two biggest

                                                               concerns respectively among retail loss prevention professionals.

                                                                                                         Retail segments with higher than average shrink rates as a percent of

                                                              sales include: Gifts (2.91%), Toys & Hobbies (2.82%), Optical

                                                              (2.59%), Convenience Stores (2.23%), Discount Stores (2.01%),

                                                              Sporting Goods (1.91%), Department Stores (1.89%), Drug Stores

                                                             (1.82%) and Supermarkets (1.81%).

                                                      What can retailers do to deter shoplifters?

                                                                                                   Provide good customer service

                                                                                                  Use electronic article surveillance (EAS) tags on merchandise

                                                                                                  Place closed circuit TV (CCTV) cameras in plain view

                                                           Security and loss prevention advancements, such as source tagging, are

                                                          taking hold in many retail segments. In the music industry, a retail segment

                                                          prone to theft because of the small, highly desirable merchandise it carries,

                                                         has seen a 25% drop in losses over the past two years, since source tagging

                                                         with anti-theft technology has been implemented.

                                                        "While traditional methods of security will always be used by retailers,

                                                         improvements such as source tagging, RFID systems and technologically

                                                        advanced surveillance systems are the real weapons in a retailer's war

                                                        against revenue loss," said Per-Olof Loof, Sensormatic's president and CEO.

                                                       "Perhaps most importantly, consumers benefit from these new systems as

                                                        they can provide a safer shopping experience while helping the retailer hold

                                                       down the cost of merchandise and offer a wider selection of products."

                                              What can retailers do to deter employee theft?

                                                                                            Use video surveillance of sales associates, especially those working at

                                                       cash registers

                                                                                           Perform systematic background screening of job applicants

                                                                                          Pay higher wages to hire and retain more dedicated employees

                                                                                         Improve job satisfaction levels of retail sales associates

                                                     ful and attentive management is always a good deterrent to both

                                                     em theft and shoplifting. Richard C. Hollinger, Ph.D., the study's

                                                     author, cites increased security as the most effective theft prevention

                                                     method. "Retailers that take the time to protect their merchandise can greatly

                                                     reduce their losses," said Hollinger. "Technical advances in store security

                                                     systems, both those that watch the consumer and, more importantly this

                                                     year, those that observe employee patterns, are essential elements in the fight

                                                     to protect a retailer's bottom line."